Detroit gets less aid than Colombia

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Protesters marched around the “Spirit of Detroit” sculpture last week during a rally against possible pension reductions. Detroit entered municipal bankruptcy on July 18.

By Chris Christoff
Bloomberg News
August 01, 2013

LANSING, Mich. — President Obama proposed giving Colombia about $323 million in aid next year, mostly to combat drug trafficking and violence. Detroit, with an 81 percent higher homicide rate, will get $108.2 million.

As Michigan’s largest city entered a record $18 billion municipal bankruptcy on July 18, the message from Congress and the White House was that no new money would be forthcoming.

Yet Detroit’s implosion has rekindled debate over how and whether a federal government that managed to provide more than $700 billion in aid to banks and automakers in 2008 and 2009 should help cities with unsustainable retirement debt, hollowed-out tax bases, and diminished services that endanger the public.

‘‘The consequences for the failure of a whole set of great American cities is not limited to the people who live in those places,’’ said Representative Dan Kildee, a Democrat from Flint, another former auto manufacturing center.

The government did not rescue the predecessors of General Motors, Chrysler, or failing banks until it was apparent their demise could sink the economy. Debt-ridden cities pose a similar threat, Kildee said.

In 2011, local governments got 5 percent of their general revenue directly from federal sources, according to aCensus Bureau report. US aid was 35 percent of state revenue, though some was passed on to cities.

In Detroit, with a fiscal 2014 budget of about $1 billion, the biggest single source of federal aid comes in the form of a $33 million Community Development Block Grant. Other US aid helps fund housing, job training, economic development, health care, and mass transit. Police, who take an hour on average to answer calls, will receive $2 million.

Detroit’s homicide rate last year was about 58 victims per 100,000 people. Colombia’s was 32 per 100,000 residents, according to its defense ministry.

Of the $323 million in proposed foreign aid for the South American nation, three-fourths would be for ‘‘peace and security,’’ the State Department says.

Some believe the erstwhile center of the US car industry could use similar largesse. Among them is Steve Rattner, the New York financier who led Obama’s auto industry bailout in 2009, which involved $80 billion in US loans. Though initially unpopular, it proved the right thing to do, Rattner said in an article The New York Times published July 20.

There is little zeal for that approach in Washington. Even Senator Carl Levin, a Democrat who once served on Detroit’s City Council, said the city should scour existing federal programs for help.

Representative Candice Miller, a Republican from Harrison Township near Detroit, said there’s no room for a federal rescue.

‘‘Detroit has been battling their fiscal problems for many years due to decades of fiscal mismanagement and public corruption,’’ she said in a statement.

Federal funding for cities peaked during the late 1960s and has been falling since the 1970s, said Tracy Gordon, a fellow at the Brookings Institution. ‘‘I don’t see that changing,’’ Gordon said. ‘‘Just tinkering around with existing grants is not going to make much of a difference.’’

Kildee said the United States should take note of Western European cities that survived hardship with help of national governments. He said Leipzig, an older industrial city like Detroit, lost 20 percent of its population after the unification of East and West Germany.

“Because they had a long-term view of infrastructure development, a more enlightened view of cities in their economies, that city was able to get around the corner and is now rebuilding itself, even though it’s smaller,’’ Kildee said. Detroit has lost more than half of its population since the 1950s.

Helping cities is a state responsibility, said Richard Ravitch, a Democrat who helped steer New York City out of a 1970s financial crisis.

Ravitch and former Federal Reserve chairman Paul Volcker led a 2012 study that concluded state pensions and retiree health-care systems are underfunded by as much as $4 trillion. Cuts in state aid threaten basic municipal services, and politicians lack courage to make hard decisions, Ravitch said. But ‘‘there’s no way Congress is going to do anything significant’’ to help Detroit, he said.

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